The Treasury Department in a notice issued today said it plans to propose reforms, including possible repeal, of eight sets of regulations issued in 2016 by the Obama administration. Included on the list are four regulation projects of specific concern to manufacturers: Section 385 debt-equity rules, proposed rules on valuing minority interests in family-owned businesses, rules for calculating gains and losses on currency exchanges and regulations allowing contractors hired by the IRS to participate fully in summons interviews and receive summoned documents.
Notice 2017-38 was issued under an executive order issued by President Donald Trump in April that asked Treasury to identify tax regulations issued in 2016 that impose an undue financial burden on taxpayers, add unnecessary complexity to the tax code or exceed the statutory authority of the IRS. Under the executive order, Treasury has until September 18, 2017, to recommend specific changes to regulations to address these issues.
The Section 385 debt/equity regulations were proposed in April 2016 and finalized six months later. As originally proposed, the rules, which would treat intercompany debt as equity, would have imposed new taxes on manufacturers and threatened legitimate and well-established business practices. While the National Association of Manufacturers’ (NAM) aggressive, large-scale advocacy effort was successful in obtaining some favorable changes to the proposed rules, the final regulations still impose a significant and unnecessary administrative and cost burden on manufacturers. We continue to advocate total repeal of these rules.
Also on the list are proposed regulations under Section 2704 on valuing minority interests in family-owned businesses, which were issued in the fall of 2016. NAM members believe that the proposed regulations, which incorporate some of the most sweeping changes to estate tax policies in the past 25 years, would unnecessarily increase estate and gift taxes on family-owned manufacturing companies by an estimated 30 percent or more, severely impacting the ability of owners of these family businesses to transfer their companies to the next generations. If finalized in their current form, these regulations would harm their ability to invest and grow their businesses and reduce their competitiveness versus non-family-owned firms. Consequently, we have urged both the Trump and Obama administrations to withdraw this proposal.
Treasury also included the final and temporary Section 987 regulations on the review list. These regulations, which would change the way companies calculate certain currency exchange gains and losses, would require businesses to change their tax and accounting systems and dedicate significant time and resources to comply with regulations. Moreover, in many cases, companies would not be able to get new technology systems developed and installed by the January 1, 2018, effective date for the final regulations, forcing these companies to spend additional resources on temporary systems.
The Section 987 regulations represent a significant change from the longstanding proposed regulations and impose new and additional compliance burdens on companies. Given the negative impact on jobs, investment and economic growth, we support withdrawal of these regulations.
Finally, Treasury indicated that it will revisit final regulations under Section 7602 that allow contractors hired by the IRS (i.e., outside economists, engineers, consultants or attorneys) access to books, papers, records or other data summoned by the IRS. In addition, under the regulations, contractors may, in the presence of an IRS officer or employee, participate fully in the interview of a person the IRS has summoned as a witness to provide testimony under oath.
The NAM believes that these regulations also should be repealed. The final regulations fall short on both policy and procedural grounds. Moreover, by allowing contractors to participate fully in summons interviews and receive summoned documents, the regulations will lead to longer and less efficient examinations.
Manufacturers applaud Treasury for acting decisively to begin to address the onerous, costly and unnecessary burden these tax regulations impose on manufacturers. We strongly urge Treasury recommend the withdrawal or repeal of these regulations in its final recommendations in September.